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Date:   Mon, 02 May 2005
From:   Dave

I have some non-qualified stock options. When I exercise them, I understand that the gain is taxable as ordinary income. I have some long-term capital losses I'm trying to use. Is there any way to offset the stock option gain with my capital loss carryover?

Answer

Hello Dave,

Capital losses can only be applied to capital gains plus $3,000. Since the income from the exercise of non-qualified stock options is taxed as additional wages and assuming you have no other capital gains, the $3,000 limit applies and any excess loss is carried over.

Good luck!

Mike Gray

For more information about non-qualified stock options, request our free report, Non-Qualified Stock Options - Executive Tax and Financial Planning Strategies.

IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained in this answer was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.